There’s been a lot of talk recently about how employers can share their health plan costs with employees. Options range from higher out-of-pocket costs at point of care to smaller contributions toward family coverage. More employers are also considering defined contributions and private exchanges or high-deductible plans paired with health savings accounts. However, equally important as sharing costs is how companies will pay for their portion. That’s where funding options including fully insured plans and self insured (self-funded) health insurance come in.

Simply put, funding options are all about how much financial risk your company wants to assume for providing health benefits to employees, and about controlling the flow of your health care dollars. If you haven’t considered or didn’t realize you have choices, you might be undercutting your bottom line.

Kaiser Permanente’s Approach to Funding Options

When it comes to funding your health care benefits for employees, Kaiser Permanente (formerly Group Health) offers four approaches to sharing the risk:

1. Fully insured

(for groups with 51 or more enrolled employees)

You pay a predetermined monthly premium based on the number of your employees enrolled in the plan. We pay your employees’ health care claims based on the benefit plan you purchase. In this case, Kaiser Permanente assumes financial and administrative responsibility for your program.

2. Rate stabilization reserve with refunding

(for groups with more than 150 enrolled employees)

You pay a predetermined monthly premium for the duration of your contract term; we pay your employees’ claims. At the end of your term, we review the accuracy of your projected expenses. If our projection was higher than actual, the surplus goes into a reserve account. If our projection was lower, you pay the deficit. Money in a reserve account can be applied to a deficit. In this scenario, we share the risk with you.

3. Retrospective adjustment

(for groups with more than 150 enrolled employees)

You pay a monthly premium; we pay your employees’ claims. We’ll do a review at the end of each contract year. If projected expenses are higher than actual, we’ll refund the difference (there is no reserve account). If projected expenses are lower, you pay us the difference. This is another case of shared risk.

4. Self-funded

(for groups with more than 150 enrolled employees)

Self-funded health insurance is also known as Administrative Services Only (ASO). When your company decides to self-insure, your business takes on the financial responsibility for the cost of your employees’ claims and the liability for your health benefit plan. We take on the responsibility of administering your program.

The Move to Self-Funding

Over the last decade, more employers have been moving away from offering group health insurance to their employees. Instead, they self-fund their medical plans. In doing so, they assume the majority of the financial risk of providing health benefits to employees. Instead of paying premiums to insurers, they pay claims filed by employees and healthcare providers. To avoid huge losses, they often sign up for stop loss insurance that protects them against very large or unexpected claims.

Advantages of Self-Funded Health Insurance Plans

Employers that wish to self-fund should have the financial resources and cash flow to pay for health care claim costs for their plan participants and to endure unpredictable increases in expense. Typically, employers are motivated to gain control over how insurance premiums are spent, reduce plan operating costs, and tailor a health benefit plan to the needs of the company. Advantages to self-funding include: